Customs’ Phase 3 refund machinery for the invalidated IEEPA tariffs came due at the end of July, but a government appeal has frozen billions owed to importers who never filed suit, and the fight over who gets paid is intensifying.
WASHINGTON, Aug. 2, 2026. The largest tariff refund operation in American history reached its most contentious milestone this week, and promptly stalled. United States Customs and Border Protection told the Court of International Trade in June that the third and final phase of its refund system for tariffs struck down under the International Emergency Economic Powers Act would be ready by late July. That deadline has now arrived. The technology, by the agency’s account, is built. What is missing is permission to use it.
Phase 3 of the Consolidated Administration and Processing of Entries system, known as CAPE, is designed to handle the hardest category of refunds: entries that have finally liquidated, the customs term for import transactions that are closed on the books and traditionally beyond reach. The government contends that CBP is not authorized to refund those entries to any importer who did not personally sue, a position it is pressing in an appeal at the Federal Circuit even as the trade court orders it, case by case, to pay. For the importing community, the question of the summer has become brutally simple: is a refund a right, or a reward for litigating?
How a Struck Down Tariff Became a 100 Billion Dollar Question
The refund fight is the long tail of the Supreme Court’s decision in February 2026 holding that IEEPA, the 1977 emergency economics statute, does not authorize the imposition of tariffs. That ruling invalidated the sweeping reciprocal and trafficking related tariff regimes imposed under the statute during 2025, duties that had been collected on a vast share of United States imports before the Court cut them down.
The administration responded on two tracks. On trade policy, it rebuilt the tariff wall under different authorities, first a temporary 10 percent global surcharge under Section 122 of the Trade Act of 1974, which a federal appeals court upheld in June and which expired on July 24, and then the new Section 301 tariffs on 60 trading partners, tied to forced labor findings, that took effect the same day. On the money already collected, however, the administration has fought a sustained rearguard action over how much must be returned, to whom, and by what procedure.
The Supreme Court resolved the legality of the tariffs but said nothing about how refunds should be administered. Into that silence stepped Senior Judge Richard Eaton of the Court of International Trade, who concluded in a series of orders that every importer whose entries bore the unlawful duties is entitled to relief, not merely the parties who filed suit. He directed CBP to liquidate unliquidated entries without the IEEPA duties, to reliquidate entries not yet final, and, most controversially, to reliquidate entries that had already become final.
From Courtroom Defeat to Refund Obligation
The path to this week’s standoff runs through every level of the federal judiciary. The IEEPA tariff regimes were first struck down at the Court of International Trade in 2025, in litigation led by small importers who argued that a statute authorizing the president to regulate importation during an emergency does not authorize him to tax it. The Federal Circuit took the appeal en banc on a highly expedited schedule, heard argument on July 31, 2025, and within a month a majority affirmed that the reciprocal and trafficking tariff regimes were not authorized by the statute. The Supreme Court agreed in February 2026, settling the legality question for good.
The remedial machinery began turning within weeks. On March 4, 2026, the trade court ordered CBP to liquidate certain unliquidated entries without applying IEEPA duties and to reliquidate entries that were not yet final. Two days later CBP told the court it was not yet ready to process refunds but expected to develop the necessary functionality in the Automated Commercial Environment within approximately 45 days. That functionality became CAPE, and the agency has been building it out in public, phase by phase, under judicial supervision ever since.
The through line of the litigation since February has been a widening gap between what the courts say importers are owed and what the government says it can and must pay. Judge Eaton’s universal orders answered the first question expansively: everyone who paid an unlawful duty is owed its return, with interest, whether or not they hired a lawyer. The government’s appeal answers the second question narrowly, and the distance between those answers is where tens of billions of dollars currently sit.
CAPE: A Refund Machine Built in Phases
CBP initially told the court that immediate compliance was impossible, because no existing system could process refund claims at the required volume. The agency then built one. CAPE Phase 1 went live on April 20, 2026 through the Automated Commercial Environment portal, covering most unliquidated entries and entries liquidated within the previous 80 days. Phase 2 launched on July 7, extending eligibility to certain reconciliation flagged entries.
The scale of the operation is without precedent in customs history. In a status declaration filed with the trade court on July 13, CBP reported that 121.75 billion dollars in potential and certified refunds had been accepted for processing in CAPE. Court filings in June indicated that more than 20 billion dollars in refunds and interest had already been certified for disbursement, and the agency has reported processing billions in actual payments since May.
Phase 3 is the last and largest piece. At a June 9 hearing, Susan Thomas, the executive assistant commissioner who leads CBP’s trade office, told the court that programming for finally liquidated entries would be ready in late July. But the agency has coupled that engineering timeline with a legal caveat: it does not consider itself currently authorized to process refunds for finally liquidated entries at all, and the government has stated that when Phase 3 does operate, it will process refunds only for importers who filed lawsuits at the Court of International Trade.
The Government’s Appeal, and Its About Face
The Department of Justice formally appealed the trade court’s universal refund orders on June 2, characterizing them as impermissible universal injunctions and arguing that the court lacks authority to grant relief to importers who are not parties before it. The appeal’s practical target is the third of the three entry categories: finally liquidated entries belonging to importers with no pending case.
The government’s current position sits awkwardly beside its earlier statements. In December 2025, the department represented to the trade court that it would not object to the court ordering reliquidation of plaintiffs’ entries if the IEEPA duties were found unlawful, adding, in a filing the court later quoted, that even if future entries are liquidated, defendants do not intend to oppose the court’s authority to order reliquidation, and that such reliquidation would result in a refund of all duties determined to be unlawfully assessed, with interest. In January 2026 the government went further, conceding it would refund IEEPA tariffs to all current and future similarly situated plaintiffs upon a final and unappealable decision that the tariffs were invalid.
The department now argues that any reliquidation order must issue importer by importer rather than universally, a distinction with enormous practical consequences. Roughly 3,700 refund cases are stacked at the Court of International Trade, most of them stayed, filed by importers who took no chances on the universal orders surviving appeal. On July 17, Judge Eaton gave those plaintiffs what they came for, ordering CBP to reliquidate, without regard to IEEPA duties, any and all of the plaintiffs’ entries liquidated for more than 80 days in the cases assigned to him. Importers inside the courthouse, in other words, are being paid or will be. The fight is over everyone outside it.
Pressure From the Bar, the Bench, and the Senate
The standoff has drawn in a widening cast. Plaintiffs in one of the lead cases moved on June 4 for certification of a class covering all importers that paid IEEPA tariffs and whose entries are not eligible for CAPE Phase 1, along with an injunction requiring the government to expand CAPE to process all claims with interest. If granted, class treatment would effectively convert the universal refund the government is appealing into a procedural fact.
On Capitol Hill, Senator Elizabeth Warren wrote to CBP in late July demanding answers on the refund program’s performance: how many refunds have been issued, how much value they cover, and how long importers are waiting between application and payment. The letter reflects a growing bipartisan irritation that a pot of money the Supreme Court said was unlawfully collected is being disbursed at a pace, and under conditions, that the collecting agency substantially controls.
Trade lawyers, meanwhile, have converged on a defensive playbook. Morgan Lewis, Holland & Knight, and other firms tracking the litigation are advising importers to inventory the liquidation status of every affected entry, file protective protests before the 180 day protest window closes on finally liquidating entries, confirm eligibility for existing CAPE phases, and consider filing suit for large exposures rather than relying on the universal orders surviving appeal. Under the customs statute, entries generally liquidate within about 314 days, CBP has 90 days to reliquidate on its own, and importers have 180 days to protest; once that period lapses, finality attaches, and with it the procedural barrier the government is now defending.
Why Finality Is the Battleground
To understand why the fight has narrowed to finally liquidated entries, it helps to understand the customs lifecycle the litigation keeps invoking. When goods enter the United States, the importer deposits estimated duties. The entry then liquidates, generally within about 314 days, when CBP fixes the final duty amount. After liquidation, two clocks run concurrently: CBP has 90 days to reliquidate on its own initiative, and the importer has 180 days to file a protest. When both expire without action, the entry becomes final, and finality has historically operated as a near absolute bar to reopening the transaction, a doctrine courts have enforced strictly to give the customs revenue system closure.
The IEEPA refund orders sought to overcome that doctrine wholesale, on the theory that duties collected without statutory authority were never lawfully owed at all. The government’s appeal defends the doctrine, arguing that the remedy for an unlawful duty on a final entry is the remedy Congress provided: a timely protest or a timely suit, importer by importer. Because IEEPA duties were collected across essentially the entire import economy during 2025, and because most affected entries have been finalizing steadily throughout 2026 as their protest windows lapse, the share of the refund pool trapped behind the finality question grows every week the appeal remains unresolved. Time, in this litigation, is not neutral.
That dynamic explains the urgency of the advice now circulating from the trade bar, and it explains the flood of protective filings at the trade court. Every protest filed before a deadline, and every complaint filed before final judgment, moves an importer from the contested category into the protected one. The roughly 3,700 pending cases are, in effect, a queue of importers who declined to rely on the government honoring a universal remedy it was simultaneously appealing.
The Economic Stakes
The sums at issue dwarf any previous customs refund episode. Beyond the 121.75 billion dollars accepted into CAPE processing, an unquantified additional pool sits in finally liquidated entries belonging to importers who never sued, the very category Phase 3 was built to reach. For individual companies the amounts are material: importers who paid IEEPA duties across 2025 on high volume consumer goods, machinery, or electronics can be owed tens or hundreds of millions of dollars, with interest accruing.
The macroeconomic effects are already visible. Refunds paid to date have functioned as a liquidity injection for the import sector, arriving as businesses absorb the new Section 301 forced labor tariffs and, for pharmaceutical importers, the Section 232 drug duties that took effect Friday. Retail trade groups have described the refunds as partial relief against a tariff burden that has otherwise ratcheted upward through 2026. Conversely, every importer whose refund is trapped behind the Phase 3 standoff is financing an interest bearing loan to the government that the Supreme Court has already said should never have been taken.
There is also a systemic question that extends beyond this episode. If the government’s position prevails, the practical lesson for importers is that duties paid under a legally doubtful program are only recoverable by those who litigate immediately and continuously, a rule that would reward the largest and best advised companies and penalize small importers who trusted the refund process. If the universal orders are affirmed, the government faces a precedent that a struck down tariff must be unwound for the entire market, an outcome that would weigh on how aggressively future administrations deploy contested trade authorities.
A Government Arguing With Its Own Ledger
The standoff carries an unmistakable fiscal subtext. The IEEPA duties were collected during a period when tariff revenue was celebrated as a policy achievement, and returning that revenue at the scale the trade court has ordered would register visibly in federal cash flows in an election year. Administration officials have not framed the appeal in fiscal terms, resting instead on the universal injunction argument that has featured in the government’s litigation posture across many policy areas. But observers on both sides of the trade bar note that the practical effect of the government’s position, if it prevails, is that a meaningful fraction of the unlawfully collected duties would simply never be returned, because the importers entitled to them did not sue in time.
The small importer problem looms especially large. Sophisticated multinationals with customs counsel filed protective protests and lawsuits as a matter of course through 2025 and 2026. The businesses least likely to have preserved their claims are the smallest ones, the same category of importer that led the original challenge to the tariffs. Consumer advocates and several members of Congress have seized on that asymmetry, arguing that a refund regime conditioned on litigation converts a legal victory won by small businesses into a recovery captured mostly by large ones.
What Importers Should Do Now
The practical guidance emerging from the trade bar is consistent. First, know your liquidation posture: identify which entries are unliquidated, which are liquidated but inside the protest window, and which are final. Second, protect the perishable rights, because the 180 day protest deadline is the one clock the litigation cannot stop, and a timely protest preserves a claim regardless of how the appeal is decided. Third, use the phases that work: CAPE Phases 1 and 2 remain operational and continue to pay, and eligible importers who have not filed should do so. Fourth, for large finally liquidated exposures, weigh an affirmative suit at the Court of International Trade, where the July 17 order shows that plaintiffs are obtaining concrete relief. Finally, build refund timing uncertainty into cash flow planning, because briefing at the Federal Circuit will run for months, and a further trip to the Supreme Court is a live possibility.
The Federal Circuit is expected to expedite its review given the sums involved, but no schedule guarantees resolution this year. The court of appeals has moved quickly in this saga before, resolving the underlying legality question within weeks of its en banc argument last summer, and both sides have incentives to seek speed: importers because interest on trapped refunds is cold comfort against real liquidity needs, and the government because every month of delay adds newly finalized entries to the disputed pool and hardens the record of a refund program administered on terms the paying agency prefers.
A further complication is the class certification motion, which the trade court could grant while the appeal is pending. A certified class covering all importers outside CAPE Phase 1 eligibility would put the universal remedy question before the Federal Circuit in a second procedural posture, and would give importers who never filed individual suits a representative claim to point to if the universal orders fall. Trade litigators describe the two tracks as belt and suspenders for the importing public: if universality survives, the class is unnecessary; if it does not, the class may be the only route to recovery for those outside the courthouse.
Until one of those tracks resolves, the American tariff system will continue to operate in an unusual condition: collecting new duties at the border under one set of authorities while disputing, dollar by dollar, how to return the old ones. For a trade community that spent 2025 learning to price tariff risk into every purchase order, 2026 has added a second discipline: pricing the risk that even a tariff the Supreme Court strikes down may, for practical purposes, never fully come back.
Reporting for this article draws on filings and orders of the Court of International Trade including the July 17, 2026 reliquidation order, CBP’s July 13, 2026 status declaration, client analyses from Morgan Lewis, Holland & Knight, and Thompson Hine, the Diaz Trade Law monthly trade roundup published July 31, 2026, Senator Warren’s oversight letter, and reporting from Green Worldwide Shipping and NBC News.